Urban Outfitters 2009 Annual Report Download - page 39

tax-exempt municipal bonds rated A or better, Federal Government Agencies, FDIC insured corporate
bonds and auction rate securities rated A or better, which bear interest at a variable rate. Due to the
average maturity and conservative nature of the Company’s investment portfolio, we believe a 100
basis point change in interest rates would not have a material effect on the consolidated financial
statements. As the interest rates on a material portion of our cash, cash equivalents and marketable
securities are variable, a change in interest rates earned on the cash, cash equivalents and marketable
securities would impact interest income along with cash flows, but would normally not impact the fair
market value of the related underlying instruments.
Approximately 7% of our cash, cash equivalents and marketable securities are invested in “A” or
better rated Auction Rate Securities (“ARS”) that represent interests in municipal and student loan
related collateralized debt obligations, all of which are guaranteed by either government agencies and/
or insured by private insurance agencies up to 97% or greater of par value. The Company’s ARS had a
par value of $44.0 million and a fair value of $38.7 million as of January 31, 2009. As of January 31,
2009, all of the ARS held by the Company failed to liquidate at auction due to lack of market demand.
As of January 31, 2008, the Company had $95.2 million of par and fair value ARS. Liquidity for these
ARS is typically provided by an auction process that resets the applicable interest rate at
pre-determined intervals, usually 7, 28, 35 or 90 days. The principal associated with these failed
auctions will not be available until either a successful auction occurs, the bond is called by the issuer, a
buyer is found from outside the auction process, or the debt obligation reaches its maturity. Based on
review of credit quality, collateralization, final stated maturity, estimates of the probability of being
called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity
for the same investment security, impact due to extended periods of maximum auction rates and
valuation models, we have recorded a $5.3 million temporary impairment on our ARS as of
January 31, 2009. To date, we have collected all interest receivable on outstanding ARS when due and
expect to continue to do so in the future. We have the ability to hold the investments until their
maturity. As a result of the current illiquidity, the Company has classified all ARS as long term assets
under marketable securities. The Company continues to monitor the market for ARS and consider the
impact, if any, on the fair value of its investments.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference from Item 7: Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Quarterly
Results of Operations and from pages F-1 through F-31.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended. Based on this review, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were
effective as of January 31, 2009.
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